Today we released our latest forecast that projects spending on U.S. mobile advertising. The highlight of this particular release is the subset of advertising that will be location targeted. We also break down formats (display, search, SMS), but here I’ll focus on the local stuff.

First off, the methodologies and definition of location targeted are quite nuanced and the topic of a separate post. To sum it up in general terms, we define local ads as having a geotargeting component meant to reach users in a specific location, or as location specific calls to action.

In general terms, that’s the same definition we apply to all the local media we cover such as radio, television, newspapers, online/interactive and YP. But of course, this is taking different (read: more granular) forms with the location targeting capabilities of the mobile device.

With that said, we see total U.S. mobile ad spending growing from $790 million in 2010 to $4 billion in 2015. But the local portion of that total will grow from $404 million to $2.8 billion. In other words, the local portion of the total will grow from 51 percent to 70 percent by 2015.

I’ve been getting lots of questions about what drives this. It will come down to a combination of three main factors.

1. ‘National-Local’ Spend: Brands and agencies are the largest source of mobile ad spending in the U.S.; they will increasingly evolve campaign objectives, targeting parameters to the capabilities of the hardware. This includes native device capabilities like the accelerometer, touch screen, camera, voice and, most of all, location awareness (i.e., GPS). From that will come more location targeted advertising.

Just as the early days of television ads showed people standing in front of the camera and reading a script (inherited from radio), mobile advertising today mostly inherits traits from the desktop. It should (and will) better evolve into the mobile form factor and the growing prevalence of smartphones. Some mobile brands and mobile ad networks (i.e., iAd, Greystripe) are already sinking their teeth into this, while others still have a ways to go.

This will be a matter of advertiser education and evolution to build mobile campaigns from the ground up for the new form factor. There are also some drawbacks any time you start to segment audiences (i.e., location targeting) because that sacrifices reach, which has always been a major objective for a lot of brand advertising. So it has to be evaluated to see if higher performance and clearer ROI outweigh the almighty reach. It’s a new medium and requires new thinking for not only the way campaigns are built and executed but also how they’re measured and deemed successful (see point 3).

2. ‘Local-Local’ Spend: Mobile advertising will move down market to SMB and mid-market segments, where it currently makes up a very small portion of the overall ad spend. This will be similar to the shift we saw online over the past decade as advertising was “democratized” through tools like AdWords. In mobile it will be driven by a combination of self-serve tools (i.e., AdWords, Foursquare), as well as local sales organizations (i.e., newspapers, Yellow Pages) that increasingly bundle mobile marketing with existing advertising. Unlike advertising by national brands, ALL of this SMB advertising will be categorized as local.

3. Premium Rates: The above two factors will result in growth in the volume of ads that are sold, while smartphone growth and usage will increase inventory. But in parallel, the premiums placed on locally targeted mobile advertising will boost the dollar share shifts shown in the chart above. Those premiums will develop as a result of the higher performance we’re already seeing with location targeted mobile ads (when compared to non-targeted). I talk to lots of mobile ad networks who consistently report higher CTR multiples and other metrics (see slide below). As a side note, and back to point 1, these metrics themselves will evolve toward more CPA based measurements, driven by things like deals and payments (an entirely separate discussion).

Those are the broad strokes but hopefully add some perspective. Our methodology involves complex formulas within each of the main mobile ad formats that examine ad volume, rates, coverage and of course mobile usage (i.e., page views or search volume) as a starting point.

That’s all vetted against a “bottom up” assessment: talking to and adding up the revenues of top mobile ad networks. This all provides a baseline for current spending, which is then taken through the ringer of forecasting usage growth, advertiser demand and factors like those above.

For additional questions or reactions of any kind, please email me at mbolandATbiakelsey.com or comment below. BIA/Kelsey subscribers can log in to get the full report, and anyone else please contact me to find out how to get bits and pieces or learn how to get the whole package.

More to come…